"[T]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas."
- John Maynard Keynes
Friedrich Hayek is probably the most influential economist of the 20th century. However, when his magnum opus, The Road to Serfdom, appeared in 1944 it was relegated to the fringe of respectable opinion. At the time, neoclassical economics was spurned for being unable to predict, or cure, the worldwide depression of the '30s. Economic planning – the bete noire of neoclassical economists – had demonstrated its potential in improving peoples' lives, from Japan to the Soviet Union to Germany to Britain to the United States. The future seemed to be one of an ever-greater role for government intervention in the economy, and an eternal sleep for laissez faire.
Neoclassical economics has since enjoyed a resurgence (much to the detriment of the world), and it would be hard to overemphasize Hayek's role in it. His anti-collectivist economic philosophy became and still is – in bastard form – the foundation of conservative and libertarian thought in the United States. Even the 'other' most influential economist of the 20th century, Milton Friedman, was an acolyte of Hayek's.
In fact, Hayek's influence spanned the world, reaching into post-revolution China and being adopted by Li Yining, an unorthodox economist who was interested in ways of making the Soviet economic model more flexible. Li became inspired by Hayek, and was pushed in a radical, capitalist direction by the rough treatment he received during the Cultural Revolution. Li is now one of China's most prestigious economists, known as “Mr. Stock Market” for his role in seeing through the creation of China's first post-revolution stock markets.
Although economists like Yi see the Cultural Revolution as an unmitigated economic and social disaster, Dongping Han's The Unknown Cultural Revolution provides a case study tending to show the opposite. Han's narrative of the Cultural Revolution is contrary not only to the dominant Western view, but also the seemingly official view of the Chinese Communist Party. The reason for this odd congruence of opinion, in the view of Han and others (like Minqui Li and Mobo Gao), is that the historically antagonistic West views all such revolutions unfavorably, and the Chinese Communist Party is today dominated by Mao's enemies and their intellectual heirs: precisely the targets Mao had in mind when initiating the Cultural Revolution.
What's strange is that the economic and political philosophy implicitly embraced by Han, and the philosophy explicitly propounded by Hayek, both share much in common while having much to inform the other.
Hayek is an apologist for classical liberalism, and how he defines liberalism is key to an understanding of his arguments. He defines liberalism as freedom, broadly speaking, but its most important aspect is “industrial freedom”, which he believes “opened the path to the free use of new knowledge” which before had been blocked by the “beliefs of the great majority on what was right and proper.” In The Road to Serfdom, Hayek's foray into economic history is maddeningly simple and short, and he conflates the development of philosophical, scientific and technological ideas with the development of liberal economics. Hayek knows that a truly liberal economy never actually existed during the 19th century, but it was a beginning that despite its infancy and at best partial implementation, should be credited with the material progress the Western world experienced during that time. One of many problems with this attribution of credit is his ignorance of the role the non-European world played in unwillingly enriching the former.
Hayek writes about liberalism in much the same way others do about capitalism; however, Hayek is writing about economic and political theory, not economic history. While in his actual usage, Hayek's “liberalism” and capitalism are coterminous, Hayek artfully evaded criticism of his theory by writing only about liberalism, an idea or ideology, instead of capitalism, an actually-existing economic system. Of course, an idea is much harder to criticize than its implementation. For instance, Hayek credited liberalism rather than capitalism with the rising standard of living Europe experienced around the Industrial Revolution: “[a]nd while the rising standard soon led to the discovery of very dark spots in society, spots which men were no longer willing to tolerate, there was probably no class that did not substantially benefit from the general advance.” If Hayek were writing about capitalism, this argument would seem a bit sophistic, since although standards of living improved on average, it would be impossible to argue that people occupying new classes and occupations, like the industrial wage-worker, enjoyed a better life than those in economic situations that no longer existed, such as the peasant with access to common land. Furthermore, there were many classes outside of Europe whose dark spots got only darker due to the “rising standard” enjoyed in Europe.
Hayek's conception of liberalism has competition as its core, which he defines as such: “parties in the market should be free to sell and buy at any price at which they can find a partner to the transaction and [...] anybody should be free to produce, sell, and buy anything that may be produced or sold at all,” without government, oligopoly or union interference.
And while Hayek hereby impliedly revealed himself as an advocate of a competitive market in child pornography whose members are free to hire the services of contract killers, he was not even half as daft as his latter day followers. He was not an ideologue with a pathological aversion to government. He also wrote that “[t]o prohibit the use of certain poisonous substances or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements, is fully compatible with the preservation of competition. The only question here is whether in the particular instance the advantages gained are greater than the social costs which they impose. Nor is the preservation of competition incompatible with an extensive system of social services...” Try running that line by a modern-day self-styled follower of Hayek.
Hayek was also cognizant of the evils of what are today called externalities: the imposition of costs upon the surrounding society by profit-seeking players in the market. “There are, finally, undoubted fields where no legal arrangements can create the main condition on which the usefulness of the system of competition and private property depends: namely, that the owner benefits from all the useful services rendered by his property and suffers for all the damages caused to others by its use. […] In all these instances [where] there is a divergence between the items which enter into private calculation and those which affect social welfare; and, whenever this divergence becomes important, some method other than competition may have to be found to supply the services in question.” Why, that's enough to drive a tea-bagging libertarian nuts! Not for Hayek the deification of free markets preferred by his intellectual descendants, the theoclassical economists; unlike people such as Alan Greenspan, who disastrously believed the competitive market to be self-correcting, Hayek (perhaps due to his closer proximity to the Great Depression) knew that free markets were no panacea. For Hayek, government intervention into the economy was necessary as a matter of fundamental political and economic principle. Instead of the fervent market-fellating engaged in by his modern admirers and self-styled followers, what motivated Hayek was a true passion for freedom. However, his was a blinkered freedom blind to the tyranny of non-governmental power.
The Cultural Revolution was an anti-government movement. Mao initiated it by end-running the state apparatus, appealing to the Chinese people directly and asking for their allegiance to a set of ideas: radically egalitarian ideas that ran counter to those prevalent within the bureaucracy. Ideas and traditions die hard, and people often overestimate the power of a revolution to give a country a fresh start. Rather, as in the Chinese case, the revolution successfully overthrew the previous government, but was unable to wipe clean centuries of societal and institutional culture. Former Red Army revolutionaries had taken up comfortable positions in the government, and carried themselves as if their wartime exploits had earned them a more comfortable, commanding life, just as generation upon generation of government officials had enjoyed throughout Chinese history. Furthermore, at the top of society, former business owners who had supported the Communists out of nationalistic motives were working to push China towards the path of capitalist development so as to make the journey more advantageous for themselves. Hence by appealing directly to the people to embrace revolutionary ideals, and by stamping civil disobedience with his own official seal of approval, Mao gave common people the courage and justification to rebel against corrupt or incompetent government officials.*
This is where the similarities between Mao and Hayek begin to appear. Hayek believed that an economic system like post-revolutionary China's would inevitably lead to the formation of unaccountable government cliques who would become the society's elite, hoarding goods for themselves and dooming the populace to a life of shackled penury. There is much in this analysis that Mao would have agreed with; except for the “inevitably” bit. Mao would likely have taken a more Critical Realist stance, identifying that economic system as tending to lead to, or allow, the formation of an unaccountable, exploitative government elite. However, this tendency can be effectively countered by structuring government in such a way as to make officials directly accountable to the people. This is precisely what the Cultural Revolution – in a necessarily hasty, unplanned and messy way – did. In Han's study of Jimo county during the Cultural Revolution demonstrates that the revolutionary devolution of economic control to common people radically undermined entrenched government power, unleashed the creativity and freedom of the people, and resulted in economic and social progress that continues to form part of the backbone of China today.
Hayek's economic reductionist philosophy was blind to factors such as history, culture, and the myriad possibilities of government structure. (No, Friedrich, political evolution did not stop with the United States' Constitution.) While Hayek believed that only “liberty” and “industrial freedom” could guarantee political democracy – in the sense of political power, equally shared by one and all – Han's book provides an illustration that democratic economic control can be just as effective. That is, instead of guarding the economic freedom of individuals, which includes the freedom to control others, it is possible to guarantee political democracy – Hayek's “liberty” – by creating a structure of economic control shared in equally by each citizen. Hayek's concept of economic freedom allows individuals to amass economic power and to lord it over the less powerful**; Mao's idea of spreading economic control to the people as a whole (as against officialdom) likewise allows individuals economic freedom – but only no more than one's neighbor has. In this way, Hayek's love of negative liberty – the freedom to be free of restriction and coercion (at least at the hands of a government, if not at the hands of an individual employer) – can be seen to be reconcilable with positive liberty, or freedom from want, hunger, domination and the like.
*Of course, not all of those damaged by the Cultural Revolution were corrupt or incompetent; unavoidably, many innocent people were denounced, harassed, beaten, unfairly lost their positions of authority, etc. But it is hard to disagree with the analysis of conservative historian Thomas Babington Macaulay: "We deplore the outrages which accompany revolutions. But the more violent the outrage, the more assured we feel that a revolution was necessary. The violence of these outrages will always be proportioned to the ferocity and ignorance of the people; and the ferocity and ignorance of the people will be proportioned by the oppression and degradation under which they have been accustomed to live."
**Here again Hayek was far less ideologically lobotomized than his self-styled followers. Hayek recognized that state intervention was required to overcome the tendency within capitalism towards concentration of economic power, hence opportunity, which was the cornerstone of his ideological justification of capitalism. He wrote that there is “much that could be done to improve the opportunities of choice open to the people. Here as elsewhere the state can do a great deal to help the spreading of knowledge and information and to assist mobility.” Also, “in a system of free enterprise chances are not equal, since such a system is necessarily based on private property and (though perhaps not with the same necessity) on inheritance, with the differences in opportunity which these create. There is , indeed, a strong case for reducing this inequality of opportunity as far as congenital differences permit...” Also, “some voluntary labor service on military lines might well be the best form for the state to provide the certainty of an opportunity for work and a minimum income for all.”